1/26/2010 2:31:07 PM COMMENTS THE BAPCPA S RESTRICTION ON ATTORNEY-CLIENT SPEECH IN THE FIFTH AND EIGHTH CIRCUITS: WORTH SAVING OR DESTROYING?

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1 COMMENTS THE BAPCPA S RESTRICTION ON ATTORNEY-CLIENT SPEECH IN THE FIFTH AND EIGHTH CIRCUITS: WORTH SAVING OR DESTROYING? SARA BERKELEY I. Introduction II. The Historical Underpinnings of Modern Bankruptcy Law A. Shifting Attitudes and Economic Crises: Congress s Attempts at a Federal Bankruptcy System B. Attempts at Bankruptcy Reform Leading Up to the BAPCPA C. A Brief History of the BAPCPA III. The Threshold Question: Are Attorneys Debt Relief Agencies? A. Majority Attorneys Are Debt Relief Agencies B. Minority Attorneys Are Not Debt Relief Agencies IV. The Eighth Circuit Analysis: 526(a)(4) Violates Attorneys Rights to Free Speech A. Determining the Applicable Level of Scrutiny: Content-Based Speech Versus Content-Neutral Speech B. Section 526(a)(4) Is Not Narrowly Tailored

2 352 ST. MARY S LAW JOURNAL [Vol. 41:351 V. The Fifth Circuit Analysis: 526(a)(4) As an Ethical Regulation A. The Last Resort/Avoidance Doctrine B. Lingering Issues Concerning 526(a)(4) VI. Conclusion I. INTRODUCTION At the April 20, 2005 signing ceremony of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), 1 President George W. Bush extolled the reform act as bringing greater stability and fairness to our financial system. 2 The controversial Act was Congress s answer to the persistent urging of unsecured creditors and legislators who felt that increasing rates of bankruptcy filings reflected consumer debtors changing perceptions of the bankruptcy system as a first resort, rather than a last. Despite widespread criticism from academics and law practitioners alike, 3 Congress passed the BAPCPA to restore personal responsibility and integrity to the bankruptcy system by attempting to regulate fraud committed by debtors and bankruptcy service providers. 4 The 2005 Act was the most 1. Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No , 119 Stat. 23 (codified as amended in scattered sections of 11 U.S.C.). 2. Remarks on Signing the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 1 PUB. PAPERS 639 (Apr. 20, 2005). 3. See St.Clair Newbern III, Legislative Enactments, in 3 ADVISING SMALL BUSINESSES 47:8 (Steven C. Alberty ed., 2009) ( BAPCPA was enacted despite the opposition of a significant number of bankruptcy judges and law school professors who felt that the abuses that infrequently occurred could be addressed... [through] the existing Bankruptcy Code. ). Some scholars characterize the act as a behemoth of bad policy, an illiteracy of ill-conceived provisions, an underbelly of unintended consequences. Catherine E. Vance & Corinne Cooper, Nine Traps and One Slap: Attorney Liability Under the New Bankruptcy Law, 79 AM. BANKR. L.J. 283, 284 (2005). Examining the scope of the provision, Vance and Cooper suggest a more accurate name for the BAPCPA is the Bankruptcy Act Reform Fiasco, or simply, BARF. Id. at 332 n Megan A. Taylor, Comment, Gag Me with a Rule of Ethics: BAPCPA s Gag Rule and the Debtor Attorney s Right to Free Speech, 24 EMORY BANKR. DEV. J. 227, 227 (2008). Some suggest that the BAPCPA went so far as to repeal the fresh start ideology of bankruptcy law in America. Harvey R. Miller, Chapter 11 in Transition From Boom to Bust and into the Future, 81 AM. BANKR. L.J. 375, 388 (2007). Miller characterizes the BAPCPA as the ill-conceived victory of special interests. Id. The BAPCPA achieved

3 2009] COMMENT 353 comprehensive overhaul of bankruptcy reform in twenty-five years; 5 indeed, its legislative history spans nearly a decade. 6 At its core, a major component of change came in the form of newly imposed restrictions on individuals and entities engaged in bankruptcy services. 7 Many of those whom the Act directly addresses are categorized broadly in the BAPCPA as debt relief agencies. 8 In relevant part, the BAPCPA defines a debt relief agency as any person who provides any bankruptcy assistance to an assisted person 9 in return for the payment of money or other valuable consideration, or who is a bankruptcy petition preparer under section Section 101(12A) then excludes five entities from the category, including some nonprofit organizations and creditors. 11 Confusion has spread among the bankruptcy courts long-held goals of creditor groups who wished to curtail the discretion of the bankruptcy courts. Id. He argues that the delicate balance between debtors rights and creditors rights was upset by the legislation. Id. 5. H.R. REP. No , pt. 1, at 3 (2005), reprinted in 2005 U.S.C.C.A.N. 88, Erwin Chemerinsky, Constitutional Issues Posed in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 AM. BANKR. L.J. 571, 571 (2005) U.S.C. 101(12A), (2006). 8. Id. 101(12A); see Melissa B. Jacoby, The Bankruptcy Code at Twenty-Five and the Next Generation of Lawmaking, 78 AM. BANKR. L.J. 221, 222 (2004) (discussing the Code as it was before the BAPCPA amendments). Even prior to the BAPCPA, Congress included bankruptcy professionals as part of the problem, and not the solution for abuses within the system. Id. Some consider this source of blame to be a diversion: instead of closing loopholes in the system, Congress cracked the whip on bankruptcy attorneys in an unprecedented fashion. See Megan A. Taylor, Comment, Gag Me with a Rule of Ethics: BAPCPA s Gag Rule and the Debtor Attorney s Right to Free Speech, 24 EMORY BANKR. DEV. J. 227, 227 (2008) (criticizing the BAPCPA s content-based restrictions). 9. The term assisted person is defined in 101(3) as any person whose debts consist primarily of consumer debts and the value of whose nonexempt property is less than $164, U.S.C.A. 101(3) (2004 & Supp. 2009) (adjusting dollar amount from $150,000 to $164,250 by the Judicial Conference of the United States) U.S.C. 101(12A). 11. Id. The debt relief agency category does not include: (A) any person who is an officer, director, employee, or agent of a person who provides such assistance or of the bankruptcy petition preparer; (B) a nonprofit organization that is exempt from taxation under section 501(c)(3) of the Internal Revenue Code of 1986; (C) a creditor of such assisted person, to the extent that the creditor is assisting such assisted person to restructure any debt owed by such assisted person to the creditor; (D) a depository institution... or any Federal credit union or State credit union...

4 354 ST. MARY S LAW JOURNAL [Vol. 41:351 and federal courts as to whether the heavily regulated debt relief agency category includes attorneys. 12 The plain language of the statute, as well as the legislative history, often leads to the conclusion that attorneys are debt relief agencies both as written and intended. 13 However, the divisions among the courts that have broached the subject reflect the serious nature of such a clearly affirmative answer. 14 That is, if an attorney is a debt relief agency, the BAPCPA imposes several additional mandates beyond those which directly regulate attorney conduct. 15 Moreover, the sweeping language of the category as written could implicate unsuspecting attorneys who practice in areas outside or any affiliate or subsidiary of such depository institution or credit union; or (E) an author, publisher, distributor, or seller of works subject to copyright protection under title 17, when acting in such capacity. 11 U.S.C. 101(12A). 12. See Robert Wann, Jr., Revisiting Debt Relief Agencies Three Years After Bankruptcy Reform, BANKING & FIN. SERVS. POL Y REP., Aug. 2008, at 6 (examining the ways in which courts have muddle[d] through the debt relief agency provisions of... the BAPCPA ). 13. See, e.g., Milavetz, Gallop & Milavetz, P.A. v. United States, 541 F.3d 785, 791 (8th Cir. 2008) (deciding that the plain language of 101(12A) includes attorneys as debt relief agencies ), cert. granted, 129 S. Ct (U.S. June 8, 2009) (No ); Olsen v. Gonzalez, 350 B.R. 906, 912 (D. Or. 2006) (asserting that the plain language of the provision includes attorneys), aff d, 368 B.R. 886 (D. Or. 2007). 14. See In re Att ys at Law & Debt Relief Agencies, 332 B.R. 66, 67 (Bankr. S.D. Ga. 2005) (determining whether attorneys are debt relief agencies ). The court explained that an affirmative answer would trigger a new layer of regulation... on the bar of this Court, and evaluation of new risks and liabilities will preoccupy [attorneys] as they strive to represent their clients. Id. at 68. After conducting a statutory construction analysis, the court concluded that attorneys are not debt relief agencies. Id. The United States Bankruptcy Court for the Southern District of Georgia was the first court to rule that lawyers did not fit the definition of debt relief agencies. George H. Singer & Whitney R. Cohen, The Attorney As Debt Relief Agency : A Bridge Too Far?, BENCH & B. MINN., Apr. 2008, at 20, 21. In fact, the court acted on its own motion to answer the question on the same day that the BAPCPA went into effect. Id. at 20, 21 (discussing In re Att ys at Law, 332 B.R. at 67). 15. See Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No , 119 Stat. 23 (codified as amended in scattered sections of 11 U.S.C.) (promulgating new restrictions for attorneys engaged in bankruptcy law); In re Att ys at Law, 332 B.R. at 67 (outlining the application of 11 U.S.C to attorneys if they indeed fall within the debt relief agency provisions); see also Catherine E. Vance & Corinne Cooper, Nine Traps and One Slap: Attorney Liability Under the New Bankruptcy Law, 79 AM. BANKR. L.J. 283, 289 (2005) ( [T]hese definitions bring into play a hideous array of new restrictions.... ).

5 2009] COMMENT 355 bankruptcy law. 16 Hence, the courts that have interpreted 101(12A) have not unanimously included attorneys in the category of debt relief agencies. 17 Section 526(a)(4) of the BAPCPA provides, in relevant part, that: A debt relief agency shall not... advise an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer fee or charge for services performed as 16. See Conn. Bar Ass n v. United States, 394 B.R. 274, (D. Conn. 2008) (delineating the broad application of the debt relief agency definition). Judge Droney explained that because the definitions accompanying the debt relief agency mandates are written broadly, they could apply to lawyers advising customers of a failed business, nondebtor spouses, or anyone else who may need representation related to a bankruptcy proceeding, so long as they are an assisted person under 11 U.S.C. 101(4A). See id. at 281 (applying the debt relief agency provisions); Catherine E. Vance & Corinne Cooper, Nine Traps and One Slap: Attorney Liability Under the New Bankruptcy Law, 79 AM. BANKR. L.J. 283, 295 (2005) (commenting that the language does not clearly identify who is included in the definition, and thus it could trap lots of unintended victims ). Chief Judge Davis also observed that the provisions, due to slipshod drafting, will apply to many attorneys who rarely, or never, represent consumer bankruptcy debtors[.] In re Att ys at Law, 332 B.R. at 68 (quoting Henry J. Sommer, Trying to Make Sense out of Nonsense: Representing Consumers Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 AM. BANKR. L.J. 191, 206 (2005)); see also Erwin Chemerinsky, Constitutional Issues Posed in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 AM. BANKR. L.J. 571, (2005) (exemplifying situations wherein an attorney could fall prey to the BAPCPA requirements even though she does not practice bankruptcy law). Chemerinsky explains, for example, that a landlord could qualify as an assisted person under the debt relief agency definition. Erwin Chemerinsky, Constitutional Issues Posed in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 AM. BANKR. L.J. 571, (2005). Should that landlord, in contemplation of filing bankruptcy, seek his attorney s advice regarding his tenants rights in bankruptcy, the debt relief agency requirements would trigger and apply to that attorney, perhaps unknowingly. Id. But see Hersh v. United States ex rel. Mukasey, 553 F.3d 743, 751 (5th Cir. 2008) (rejecting Hersh s argument that attorneys are bound by the BAPCPA even when they are not counseling debtors). The Fifth Circuit disagreed with Hersh regarding her claim that, as written, the debt relief agency provision would apply to attorneys who are not advising debtors. Id. Judge Garwood explained that, if Hersh is counseling a client who is a creditor or any other client who qualifies as an assisted person but who is not seeking legal advice related to the client s own bankruptcy, then Hersh would not be in a position to violate 526. Id. In short, the court explained, she simply would not be advising a client in contemplation of bankruptcy, and thus the debt relief agency provisions would not apply. Id. 17. See Milavetz, 541 F.3d at 790 (citing In re Irons, 379 B.R. 680, 685 (Bankr. S.D. Tex. 2007)) (pointing out the division among the lower courts when interpreting 101(12A)).

6 356 ST. MARY S LAW JOURNAL [Vol. 41:351 part of preparing for or representing a debtor in a case under this title. 18 Since the enactment of the BAPCPA, attorneys have challenged 11 U.S.C. 526(a)(4) as violative of the Constitution, 19 in part because of the statute s regulation of attorney-client speech. 20 These attorneys maintain that lawyers can advise a client to incur more debt in contemplation of filing a bankruptcy petition in a fashion not only beneficial and necessary to the client s case, but lawful. In this view, 526(a)(4) operates as a gag rule on an attorney s ability to inform a client (or prospective client) of such options. Consequently, in its broad scope, the rule prevents an attorney from exercising her duty under codes of professional conduct to provide competent services to her client. The restriction therefore presents the bankruptcy attorney with a Hobson s choice: she can either underrepresent her client by withholding the otherwise lawful advice, or violate the so-called gag order of 526(a)(4) U.S.C. 526(a)(4) (2006). 19. See U.S. CONST. amend. I, cl. 3 ( Congress shall make no law... abridging the freedom of speech.... ). In Hersh, an attorney also challenged the BAPCPA on Fifth Amendment grounds, contending that her client had the right to retain counsel in civil matters. Hersh v. United States, 347 B.R. 19, 28 (N.D. Tex. 2006), rev d in part sub nom. Hersh v. United States ex rel. Mukasey, 553 F.3d 743 (5th Cir. 2008). The court dismissed the challenge for lack of standing. Id. 20. See, e.g., Milavetz, 541 F.3d at 793 (discussing how 526(a)(4) prevents attorneys from fulfilling their duty to clients to give them appropriate and beneficial advice ); Conn. Bar Ass n, 394 B.R. at 281 (referring to the restrictions of 526(a)(4) as being content-based and affect[ing] protected speech ); In re Irons, 379 B.R. 680, (Bankr. S.D. Tex. 2007) (addressing complainant s concern that the regulation oppresses attorney-client speech); Olsen v. Gonzales, 368 B.R. 886, 916 (D. Or. 2007) (stating 526(a)(4) prevents lawyers from advising clients to take lawful... [and] prudent actions ); Zelotes v. Martini, 352 B.R. 17, 24 (D. Conn. 2006) (referring to the impact 526(a)(4) has on attorney-client speech), aff d sub nom. Zelotes v. Adams, 363 B.R. 660 (D. Conn. 2007); Geisenberger v. Gonzales, 346 B.R. 678, 680 (E.D. Pa. 2006) (examining the effects of 526(a)(4) on attorney-client speech); Hersh, 347 B.R. at 24 (stating that 526(a)(4) prevents an attorney from advising a client to take certain actions that are lawful under the BAPCPA). But see Milavetz, 541 F.3d at (Colloton, J., concurring in part and dissenting in part) (arguing for a narrow interpretation consistent with the intent of Congress). Judge Colloton urged that the statute should not be given its broadest reading ; he maintained that such an interpretation raised unnecessary constitutional problems. Id. at 799. Rather, Judge Colloton advocated the reading provided by the Government, which he found as an acceptable narrowing construction that would avoid most constitutional difficulties. Id. 21. Megan A. Taylor, Comment, Gag Me with a Rule of Ethics: BAPCPA s Gag Rule

7 2009] COMMENT 357 In 2008, the debt relief agency controversy made its way into the federal courts of appeals and created an even split. 22 The Eighth Circuit joined the majority view of the lower courts in September 2008 and held 526(a)(4) unconstitutional as applied to attorneys in Milavetz, Gallop & Milavetz, P.A. v. United States. 23 However, in December 2008, in Hersh v. United States ex rel. Mukasey, 24 the Fifth Circuit ruled in favor of a narrow construction of 526(a)(4) that renders the statute unproblematic under the First Amendment. 25 The Fifth Circuit opinion in Hersh and Judge Colloton s dissenting opinion in Milavetz reflect a competing analysis of statutory interpretation. 26 This perspective, in a departure from the Eighth Circuit majority opinion, maintains that under the doctrine of constitutional avoidance, 526(a)(4) is more properly construed as a legitimate ethical regulation of attorney speech. 27 This Comment will examine the contours of and the Debtor Attorney s Right to Free Speech, 24 EMORY BANKR. DEV. J. 227, 227 (2008). 22. Compare Milavetz, 541 F.3d at 797 (holding 526(a)(4) unconstitutional as applied to attorneys), with Hersh, 553 F.3d at 761 (holding 526(a)(4) constitutional under a narrowing construction). 23. Milavetz, Gallop & Milavetz, P.A. v. United States, 541 F.3d 785 (8th Cir. 2008), cert. granted, 129 S. Ct (U.S. June 8, 2009) (No ). 24. Hersh v. United States ex rel. Mukasey, 553 F.3d 743 (5th Cir. 2008). 25. Hersh, 553 F.3d at 761 (holding that 526(a)(4) does not violate the Constitution under a narrowing interpretation); cf. Zadvydas v. Davis, 533 U.S. 678, 688 (2001) (construing an immigration statute to suit constitutional standards). In Zadvydas, the Court decided whether a post-removal statute authorized the Attorney General to hold an alien for an indefinite period of time. Zadvydas, 533 U.S. at 682. The Court found nothing in the statute s legislative history that supported a reading of the statute as authorizing the detention indefinitely. Id. at 682, 699. The Court conceded that such a reading would violate the Constitution. Id. at 690. However, the Court recognized its history of read[ing] significant limitations into other immigration statutes to force their compliance with the Constitution. Id. at 689. Thus, the Court included an implicit [time] limitation into the statute, determining that the provision only authorized the Attorney General to detain aliens for a period reasonably necessary to bring about [their] removal. Id. 26. Compare Hersh, 553 F.3d at 753 (construing 526(a)(4) narrowly to include an implied purposive abuse requirement), with Milavetz, 541 F.3d at 798 (Colloton, J., concurring in part and dissenting in part) (disagreeing with the broad interpretation of the statute under the majority s opinion). 27. See Hersh, 553 F.3d at 753 (explaining that 526(a)(4) should be interpreted under the doctrine of constitutional avoidance); Milavetz, 541 F.3d at 798 (Colloton, J., concurring in part and dissenting in part) (advocating a narrow construction of 526(a)(4) under the avoidance doctrine but agreeing with the majority that 526(a)(4) and (b)(2) are constitutional); cf. Edward J. DeBartolo Corp. v. Fla. Gulf Coast Bldg. & Constr.

8 358 ST. MARY S LAW JOURNAL [Vol. 41:351 the 526(a)(4) challenge and the ways in which it has (and has not) proved successful in the bankruptcy courts, district courts, and on its first impressions in the federal courts of appeals. Section II discusses the background of bankruptcy law, explaining the perceived abuses of the system in stages of its development in America. Section III discusses 101(12A) of the Bankruptcy Code (the Code) and examines the threshold question of whether attorneys are properly included within the debt relief agency category. Section IV sets forth the constitutional analysis under which the Eighth Circuit struck down 526(a)(4), and Section V discusses the Fifth Circuit s more cautioned approach to the 526(a)(4) controversy under the doctrine of constitutional avoidance. Finally, Section VI concludes with a look at the deepening debate on the 526(a)(4) issue 28 and the questions it raises about the proper role the judiciary plays in both upholding the Constitution and saving legislation from the tyranny of literalness. 29 Trades Council, 485 U.S. 568, 575 (1988) (delineating the importance of the doctrine of constitutional avoidance). The Supreme Court has explained that, where an otherwise acceptable construction of a statute would raise serious constitutional problems, the Court will construe the statute to avoid such problems unless such construction is plainly contrary to the intent of Congress. Milavetz, 541 F.3d at 791 (quoting Edward J. DeBartolo Corp., 485 U.S. at 575). 28. As this Comment goes to print, the United States Supreme Court prepares to render an opinion in Milavetz, Gallop & Milavetz, P.A. v. United States. Although the Court s decision in the case will shed light on the proper interpretation of 526(a)(4), the controversy is expected to be the first of many challenges to the constitutionality of certain BAPCPA provisions. See generally Erwin Chemerinsky, Constitutional Issues Posed in the Bankruptcy Abuse and Consumer Protection Act of 2005, 79 AM. BANKR. L.J. 571 (2005) (providing an in-depth discussion of the problematic portions of the BAPCPA). 29. See United States v. Witkovich, 353 U.S. 194, 199 (1957). In Witkovich, the Supreme Court dealt with an immigration provision that gave dramatically broad powers to the Attorney General in acquiring information from an immigrant scheduled for impending deportation. Id. Recognizing the constitutional problems posed if the statute were interpreted in its literal form, the Government argued, and the Court agreed, that a restrictive meaning for what appear to be plain words may be indicated by the Act as a whole. Id. All relevant considerations[,] the Court continued, for giving a rational content to the words become operative. Id. See generally United States v. X-Citement Video, Inc., 513 U.S. 64 (1994) (incorporating a scienter requirement into a statute to save it from constitutional doubt); Boos v. Barry, 485 U.S. 312 (1988) (construing a statute narrowly to avoid constitutional problems). The practice of applying a narrowing construction to constitutionally problematic statutes has its limits. See, e.g., Aptheker v. Sec y of State, 378 U.S. 500, 515 (1964) (declining to judicially rewrite a statute to force its compliance with constitutional demands).

9 2009] COMMENT 359 II. THE HISTORICAL UNDERPINNINGS OF MODERN BANKRUPTCY LAW A. Shifting Attitudes and Economic Crises: Congress s Attempts at a Federal Bankruptcy System Although the principle that America is a nation of second chances predicates modern bankruptcy law, 30 humanitarian concerns were not a central focus of bankruptcy law s early English or American antecedents. 31 England s first bankruptcy law came about in 1542, titled, An act against such persons as do make bankrupts, 32 and under this early English scheme, bankruptcy concerned acts committed by the debtor to avoid repayment of debts. 33 The law at the time viewed such debtors as quasi-criminals ; these so-called offenders faced the possibility of imprisonment or death for their attempts to evade persistent creditors. 34 Discharge was not introduced into the English system 30. Remarks on Signing the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 1 PUB. PAPERS 639 (Apr. 20, 2005). President George W. Bush explained at the signing of the bill that America is a nation of personal responsibility[,] but that [w]e re also a nation of fairness and compassion where those who need it most are afforded a fresh start. Id. The theory of discharge has been called a scholarly conundrum. John M. Czarnetzky, The Individual and Failure: A Theory of the Bankruptcy Discharge, 32 ARIZ. ST. L.J. 393, 393 (2000). Czarnetzky poses several competing theories to justify the practice of discharge, such as a moral concern that demands humane treatment of all members of society and the use of discharge as a carrot to encourage debtors to participate in the process of liquidation and repayment. Id. Another prevailing view maintains that discharge increases social utility by placing the debtor back in a productive position once he is out from under his debts. Id. 31. See generally Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 6 32 (1995) (examining the history of bankruptcy law in America leading up to the Bankruptcy Reform Act of 1978). 32. Id. at 7 (emphasis added) (quoting 34 & 35 Hen. 8, c. 4 ( ) (Eng. & Wales). 33. Id.; see also Charles Jordan Tabb, The Historical Evolution of the Bankruptcy Discharge, 65 AM. BANKR. L.J. 325, 329 (1991) (explaining that the initial English bankruptcy laws were distinctly geared toward creditors). Debtors used several strategies to avoid creditors, including fleeing the kingdom, hiding assets, seeking sanctuary, and keeping house. Charles Jordan Tabb, The Historical Evolution of the Bankruptcy Discharge, 65 AM. BANKR. L.J. 325, 328 (1991). 34. See Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 7 8 (1995) (stating that the death penalty was available for property crimes; bankruptcy was commonly viewed no differently). Under early English common law, writs of capias allowed for body execution. Id. at 7. After obtaining a writ of capias, the creditor was free to [seize] the body of the debtor until his debts were paid. Id. Tabb also argues that, while death was a possibility under the

10 360 ST. MARY S LAW JOURNAL [Vol. 41:351 until 1705 and was available only to cooperative debtors. 35 Those who were deemed uncooperative (i.e. fraudulent), however, faced a penalty of death for their transgressions. 36 Moreover, early English bankruptcy laws were applicable only to merchants, 37 as unpaid debts were generally viewed as a restraint on national commerce. 38 In colonial America, the Framers of the Constitution were primarily concerned with the potential encumbrance state bankruptcy laws could pose on national commerce. 39 Most states English system, the actual numbers do not suggest authorities inflicted such punishment as a matter of common practice. Id. at 12. To the contrary, records show that in the 115 years such penalties were imposed, only five debtors were executed under bankruptcy law. Id.; see also 2 WILLIAM BLACKSTONE, COMMENTARIES * (asserting that the delay of payment is a species of dishonesty and it is an unjustifiable practice, for any person but a tradesman to encumber himself with debts of any considerable value ). 35. Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 11 (1995). Prior to the introduction of discharge into the English system, the process operated in some ways like a modern Chapter 7 liquidation. Cf. LYNN M. LOPUCKI & ELIZABETH WARREN, SECURED CREDIT: A SYSTEMS APPROACH (5th ed. 2006) ( Following liquidation of the nonexempt property of a Chapter 7 estate, the trustee distributes the money pro rata to the general creditors. ). An appointed bankruptcy chancellor would seize all assets from offenders, sell them, and distribute the proceeds pro rata to the creditors. See Charles Jordan Tabb, The Historical Evolution of the Bankruptcy Discharge, 65 AM. BANKR. L.J. 325, 328 (1991) (describing the creditor s rights under the Statute of 4 Anne). Upon notice the various assets of the debtor were seized, appraised, and sold, and the proceeds were distributed pro rata to all creditors proving just claims. Id. However, because there was no discharge of debt, the creditors continually haunted the debtor with lawsuits to collect debts even after asset liquidation. Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 10 (1995). 36. Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 8 (1995). 37. See id. at 9 ( The bankruptcy law only applied to traders, i.e., to merchant debtors. ). 38. See Charles Jordan Tabb, The Historical Evolution of the Bankruptcy Discharge, 65 AM. BANKR. L.J. 325, 327 (1991) ( Only the creditor s interests were of concern. ). Tabb notes that protection of creditors was generally likened to protection of commerce. Id. Moreover, protection of commerce was largely seen as protection of the king. Id. 39. Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 13 (1995); see also Judith Schenck Koffler, The Bankruptcy Clause and Exemption Laws: A Reexamination of the Doctrine of Geographic Uniformity, 58 N.Y.U. L. REV. 22, 54 (1983) (outlining the roots of the bankruptcy clause in early American thought). Justice Joseph Story maintained that federal bankruptcy law would solve the mischief of varied state law. Judith Schenck Koffler, The Bankruptcy Clause and Exemption Laws: A Reexamination of the Doctrine of Geographic Uniformity, 58 N.Y.U. L. REV. 22, 54 (1983). He also feared that local politicians acting on narrow interests were harmful to debtors and advised that the federal government was better

11 2009] COMMENT 361 in the colonial era had their own system of regulating relationships between debtors and creditors, and James Madison, for one, feared that the lack of national uniformity provided fertile ground for fraud. 40 The Framers wrote the Bankruptcy Clause into the United States Constitution and thereby granted Congress the ability to regulate the varying bankruptcy systems spread across state lines. 41 But Congress did not significantly act on its constitutional power to create uniform laws on the subject of bankruptcies until By the turn of the nineteenth century, national pressure for Congress to develop a federal system of bankruptcy had significantly increased. 43 The Panic of 1797, however, was the critical catalyst for its formation. 44 Although the 1797 crash was the second of its kind in a decade, its fallout resulted in the imprisonment of thousands of debtors unable to resolve their debts. 45 Despite some political controversy to the contrary, 46 suited to create a uniform system. Id. The power of Congress to regulate bankruptcy laws was accepted under the same understanding of the power to regulate commerce. Id. Uniform bankruptcy laws, as understood by scholars, would engender more trade between the United States and foreign countries. Id. at Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 13 (1995) ( The power of establishing uniform laws of bankruptcy is so intimately connected with the regulation of commerce, and will prevent so many frauds.... (quoting THE FEDERALIST NO. 42 (James Madison))); see also David A. Skeel, Jr., Bankruptcy Lawyers and the Shape of American Bankruptcy Law, 67 FORDHAM L. REV. 497, 499 (1998) (describing the colorful nature of nineteenth century bankruptcy debates). Thomas Jefferson was opposed to bankruptcy in the early years of the century, and Daniel Webster is still remembered for his impassioned speeches supporting legislation of bankruptcy on a national level. David A. Skeel, Jr., Bankruptcy Lawyers and the Shape of American Bankruptcy Law, 67 FORDHAM L. REV. 497, 499 (1998). 41. See U.S. CONST. art. I, 8, cls. 1, 4 ( Congress shall have Power... To establish... uniform Laws on the subject of Bankruptcies throughout the United States. ). 42. Bankruptcy Act of 1800, ch. 19, 2 Stat. 19, repealed by Act of Dec. 19, 1803, ch. 6, 2 Stat. 248; see also Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 13 (1995) (outlining American bankruptcy law prior to 1898). The federal law of 1800 was briefly in effect until its repeal in Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 13 (1995). The same fate followed for the Act of 1841 (repealed in 1843) and the Act of 1867 (repealed in 1878). Id. 43. See Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 14 (1995) (characterizing the crash of 1792 as a primary source of the public pressure in favor of federal bankruptcy laws). 44. Id. 45. Id. at 14 (describing the widespread ruin... of thousands of debtors ).

12 362 ST. MARY S LAW JOURNAL [Vol. 41:351 Congress recognized that the nation needed something more than a varied, state-regulated system of bankruptcy law to address the changing trade and credit markets. 47 Yet, the Act of 1800 simply reflected the same system as set forth in England s contemporaneous bankruptcy scheme. 48 It was repealed shortly thereafter in The fresh start ideology of contemporary American bankruptcy law has its roots in the shift from involuntary bankruptcy proceedings against the debtor to voluntary relief for debtors as spawned in the Act of Like its predecessors, the 1841 Act was repealed, and its validity only lasted approximately one year. 51 Creditors were enraged by the number of debtors obtaining discharge under the new system, and the administrative burdens proved costly. 52 Nonetheless, the Act s impact on American bankruptcy law has proved indefinite. 53 Though an exhaustive delineation of the history of bankruptcy 46. See id. at 15 ( By 1803, the sentiment for repeal of the 1800 Act was overwhelming. ). 47. See Charles Jordan Tabb, The Historical Evolution of the Bankruptcy Discharge, 65 AM. BANKR. L.J. 325, 345 (1991) (alleging that the colonies efforts to legislate on bankruptcy were no match for the national financial distress caused by the Panic ). 48. See Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 12 (1995) (suggesting that the 1732 Statute of George II was, in many aspects, a model for the American system of bankruptcy adopted in 1800). Two major similarities between the two systems were (1) the involuntary nature of the proceedings, and (2) their applicability to only traders. Id. Insolvency laws, a separate debt relief scheme, addressed the consumer debtor more directly than did the mirrored American and English models. Id. 49. See David A. Skeel, Jr., Bankruptcy Lawyers and the Shape of American Bankruptcy Law, 67 FORDHAM L. REV. 497, 500 (1998) (concluding that the nineteenth century pattern of establishing and then repealing bankruptcy laws is attributable to cycles of good times followed by severe economic slumps). 50. See Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 17 (1995) (noting that the act was revolutionary in its creation of voluntary bankruptcy and discharge for the financially troubled debtor ). Tabb also asserts that, with the marriage of trader-merchant bankruptcy law and consumer-debtor insolvency law, the Act of 1841 could be called the first modern bankruptcy law. Id. at Id. 52. See id. at (describing new procedures for debtors under the Bankruptcy Act of 1841). Many thousands of debtors were discharged, minimal dividends were paid to creditors, and administrative fees were high. Id. at See Charles Jordan Tabb, The Historical Evolution of the Bankruptcy Discharge, 65 AM. BANKR. L.J. 325, 353 (1991) ( Despite its short life... the [Act of 1841] represented a significant milestone in the evolution of the bankruptcy discharge. ).

13 2009] COMMENT 363 law in America is beyond the scope of this Comment, several other defining moments in the development of modern bankruptcy law are worth mention. After the Act of 1841 was repealed, Congress deferred again to state regulation for nearly twenty-five years. 54 In 1867, Congress tried again, but the 1867 Act was repealed in 1878 due to loudly voiced concerns from creditors regarding fees, delays, and minimal collection of debts. 55 Finally, in 1898, Congress passed an act that stuck. 56 The Bankruptcy Act of 1898 stayed intact for nearly eighty years, and though Congress has amended the original many times, the Act is the basis of prevailing bankruptcy laws. 57 The 1898 Act turned its aim dramatically toward debtor relief, allowing liquidation, voluntary and involuntary proceedings, and exemptions proving necessary for an 54. Id. 55. Bankruptcy Act of 1867, ch. 176, 14 Stat. 517, repealed by Act of June 7, 1878, ch. 160, 20 Stat. 99; Charles Jordan Tabb, The Historical Evolution of the Bankruptcy Discharge, 65 AM. BANKR. L.J. 325, 362 (1991). 56. See Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 27 (1995) (explaining that despite Congress s attempts to repeal the law in the 1960s, 1980s, and 1990s, the Act remained the law); see also David A. Skeel, Jr., Bankruptcy Lawyers and the Shape of American Bankruptcy Law, 67 FORDHAM L. REV. 497, 505 (1998) (outlining the primary aspects of the 1898 Act that contributed to its staying power). Skeel explains that the Act s minimalist structure lent to the creation of a bankruptcy bar, which helped to maintain the survival of the Act. David A. Skeel, Jr., Bankruptcy Lawyers and the Shape of American Bankruptcy Law, 67 FORDHAM L. REV. 497, 505 (1998). In other words, attorneys began to play an increasingly prominent role in the debates ; their presence became influential and widespread, essentially preclud[ing] the possibility of eliminating federal bankruptcy law altogether. Id. at See Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 24 (1995) ( [T]he 1898 Act ushered in the modern era of liberal debtor treatment in United States bankruptcy laws. ). The Chandler Act, passed in 1938, was the most momentous of changes made to the Act of Id. at 23, 29 (citing the Chandler Act, ch. 575, 52 Stat. 840 (1938) (repealed in 1978)). Scholars offer several explanations as to why the Act of 1898 was sustained substantially longer than its predecessors. See David A. Skeel, Jr., Bankruptcy Lawyers and the Shape of American Bankruptcy Law, 67 FORDHAM L. REV. 497, 505 (1998) (examining the persistence of the Act of 1898). For one, the Act of 1898 created a bankruptcy bar that shared a major financial stake in federal legislation and thus contributed to the survival of the national bankruptcy legislation. Id. The Act also emerged at a time of great development toward the West and widespread commerce facilitated by industrialization. See David S. Kennedy & R. Spencer Clift, III, An Historical Analysis of Insolvency Laws and Their Impact on the Role, Power, and Jurisdiction of Today s United States Bankruptcy Court and Its Judicial Officers, 9 J. BANKR. L. & PRAC. 165, (2000) (outlining the social and economic climate surrounding the 1898 Act).

14 364 ST. MARY S LAW JOURNAL [Vol. 41:351 individual s chance to start over. 58 B. Attempts at Bankruptcy Reform Leading Up to BAPCPA In the post-depression era, Congress amended the Code through the promulgation of the Chandler Act of The Chandler Act made comprehensive alterations to the 1898 Act and included updated procedural and administrative changes for liquidation proceedings. 60 The most significant of changes brought by the Chandler Act included a new Chapter X, which governed corporate reorganizations, and Chapter XIII, which addressed wage earners plans. 61 While Congress continued to amend specific provisions within prevailing bankruptcy law, sweeping change did not arrive for some time following the Chandler Act. Its newly revised reorganization and procedural provisions reigned for some forty years. 62 By the 1960s, the bankruptcy system, as promulgated in the Bankruptcy Act of 1898 and amended by the Chandler Act, began to feel archaic and inefficient to both observers and practitioners. 63 The political and economic climate that 58. See David S. Kennedy & R. Spencer Clift, III, An Historical Analysis of Insolvency Laws and Their Impact on the Role, Power, and Jurisdiction of Today s United States Bankruptcy Court and Its Judicial Officers, 9 J. BANKR. L. & PRAC. 165, (2000) (considering important features of the Act of 1898 and their impact on attorneys). The Act also created bankruptcy referees who possessed powers far exceeding those given to judges in prior Acts, but who were subject to judicial review by an Article III court. See id. (detailing the duties of the then newly-established bankruptcy referees). This early delegation of power to referees set into motion the administrative and judicial role that is the backbone of modern bankruptcy litigation. See id. at 177 (pointing out that under the Act of 1898, judges were expected to perform dual administrative and judicial functions ). The writers explain that this dual role led to eventual deficiencies in the bankruptcy system; such matters were impacted significantly by the promulgation of the Rules of Bankruptcy Procedure during the 1970s. Id. 59. Chandler Act, Pub. L. No , 52 Stat. 840 (1938) (repealed 1978). 60. Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 29 (1995). 61. Id. 62. Id. at See Eric A. Posner, The Political Economy of the Bankruptcy Reform Act of 1978, 96 MICH. L. REV. 47, 61 (1997) (summarizing the inefficiencies of an outdated and aggressively amended Act of 1898). Scholar Harvey R. Miller examines the rapid economic changes at work in the 1960s and their effects on bankruptcy practice in America. Harvey R. Miller, Chapter 11 in Transition from Boom to Bust and into the Future, 81 AM. BANKR. L.J. 375, 377 (2007). Public ownership, he explains, became a very

15 2009] COMMENT 365 influenced the creation of the Act at the turn of the twentieth century no longer shaped the goals of modern bankruptcy law. 64 The movement toward reform lasted ten years 65 and was supplemented by a report issued by the Commission on Bankruptcy Laws of the United States. 66 Among others, major complaints of the Commission were: [t]he rapid increase of bankruptcies, 67 [i]nsufficiently generous fresh start for debtors, popular concept, and many growing businesses desired to go [] public in American markets. Id. at 376. In the 1970s, however, the economic cycle ended in a bankruptcy boom. Id. Thereafter, he notes, bankruptcy began to allure more attorneys into its burgeoning area of law. Id. The stigma of bankruptcy slowly changed as the cases got bigger and more common. Id. This boom continued to grow through the middle of the 1990s, and it reached its height in the early 2000s when it was popularized with cases like that of Enron and WorldCom. Harvey R. Miller, Chapter 11 in Transition from Boom to Bust and into the Future, 81 AM. BANKR. L.J. 375, 376 (2007). 64. See Eric A. Posner, The Political Economy of the Bankruptcy Reform Act of 1978, 96 MICH. L. REV. 47, 61 (1997) (discussing the relative change in national needs since the Act of 1898); see also David S. Kennedy & R. Spencer Clift, III, An Historical Analysis of Insolvency Laws and Their Impact on the Role, Power, and Jurisdiction of Today s United States Bankruptcy Court and Its Judicial Officers, 9 J. BANKR. L. & PRAC. 165, 177 (2000) (indicating that the aftermath of World War II was a major strain on the bankruptcy system considered during the early formation of the Act of 1978). The economic underpinnings in America were not as globalized in the 1970s as they are today. See Harvey R. Miller, Chapter 11 in Transition from Boom to Bust and into the Future, 81 AM. BANKR. L.J. 375, 388 (2007) (examining the events leading up to the Reform Act of 1978). The Uniform Commercial Code had not yet been adopted by many states at this time, and as a consequence, unsecured lenders had little protection. See id. (commenting on the economic climate of the 1960s and 1970s in America). Many lenders relied instead upon relationships with their customers to secure loans, and access to credit was mostly limited. Id. Thus, in the late 1960s and 1970s, creditors began to demand representation, and their impact on new bankruptcy legislation began to materialize. Id. at Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 32 (1995). 66. H.R. REP. No (1970), reprinted in 1970 U.S.C.C.A.N. 3559; see Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 32 (1995) (setting forth the mission of the Bankruptcy Commission as directed by Congress). The stated goals were to study, analyze, evaluate, and recommend changes to the [1898] Act... in order for such Act to reflect and adequately meet the demands of present technical, financial, and commercial activities. H.R. REP. No (1970), reprinted in 1970 U.S.C.C.A.N Eric A. Posner, The Political Economy of the Bankruptcy Reform Act of 1978, 96 MICH. L. REV. 47, 68 (1997) (discussing the Commission s findings in its Report). The Commission found that bankruptcies had increased from 10,196 filings in 1946, to 208,329 filings in Id. The dramatic increases of consumer bankruptcy filings were specifically noted by the Commission in its Report. Id. at 68; see also H.R. REP. No (1970), reprinted in 1970 U.S.C.C.A.N (reporting the goals and findings of the Commission).

16 366 ST. MARY S LAW JOURNAL [Vol. 41:351 and inadequate incentives for creditors to collect in bankruptc[ies], and [a]busive or negligent practices by bankruptcy judges, trustees, and bankruptcy lawyers. 68 In response to perceived abuses of the bankruptcy system, the 1978 Act also sought to increase Chapter 13 reorganization filings an aim that was also a goal of the 2005 Act. 69 Although Congress continued to amend the Code after the 1978 Act, it was not until 2005 that comprehensive reform came to the consumer bankruptcy laws in the Bankruptcy Abuse Prevention and Consumer Protection Act of C. A Brief History of the BAPCPA The BAPCPA is a derivative of the National Bankruptcy Review Commission (NBRC), an investigational entity Congress created in 1994 to study a host of issues relating to the bankruptcy system. 71 Setting a two-year timeline, Congress directed the ninemember committee to base its work upon reviewing, improving, and updating the Code in ways which do not disturb the fundamental tenets and balance of current law. 72 The NBRC s examination of the bankruptcy system included meetings with, or 68. Eric A. Posner, The Political Economy of the Bankruptcy Reform Act of 1978, 96 MICH. L. REV. 47, 68 (1997). Other complaints included administrative waste and [l]ack of uniformity in the treatment of debtors. Id. The chief undertaking of the 1978 Act was the congressional grant of a broader scope of jurisdiction for bankruptcy courts. Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 34 (1995). Additionally, Congress sought to address the administrative problems that existed under the Act of Id. at Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, (1995). 70. Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No , 119 Stat. 23 (codified as amended in scattered sections of 11 U.S.C.). 71. See H.R. REP. No , at 3 (2005), reprinted in 2005 U.S.C.C.A.N. 88, 90 (reviewing the findings of the NBRC and the need for new legislation to address them); St.Clair Newbern III, Legislative Enactments, in 3 ADVISING SMALL BUSINESSES 47:8 (Steven C. Alberty ed., 2009) (summarizing the NBRC s activity in the years leading up to congressional action). 72. See H.R. REP. No , at 59 (1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3399 (addressing the need to review abuses in the system); see also Susan Jensen, A Legislative History of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 AM. BANKR. L.J. 485, 486 (2005) (reviewing Congress s directives for the NBRC); Gary Neustadter, 2005: A Consumer Bankruptcy Odyssey, 39 CREIGHTON L. REV. 225, 226 (2006) (discussing the creation of the NBRC).

17 2009] COMMENT 367 recommendations from, more than 2,600 people, 73 and culminated three years later in a 1,028-page report that contained 172 recommendations for the Bankruptcy Code. 74 The most controversial aspects of the Report were related to consumer bankruptcy. 75 In addition to the official recommendations, 272 pages of sharply dissenting views were filed with the Report. 76 Citing, among other trends, the decline of the moral stigma once attached to consumer filings, a minority of the NBRC felt that the recommendations did not go far enough to penalize or deter abuse. 77 Congress apparently agreed. 78 Both the Senate and House Judiciary Committees discussed the findings in the NBRC s report in the fall of The theoretical undercurrents of the hearings echoed the views of the NBRC dissenters, particularly in the area of consumer bankruptcy. 80 Representative George W. Gekas, for example, 73. Nat l Bankr. Review Comm n, Rep. of the Nat l Bankr. Review Comm n ix (Oct. 20, 1997), available at The preface to the NBRC Report points out that over 600 people involved in the bankruptcy system attended NBRC meetings and over 2,300 written submissions were sent from every state on every conceivable subject related to bankruptcy. Id.; see also St.Clair Newbern III, Legislative Enactments, in 3 ADVISING SMALL BUSINESSES 47:8 (Steven C. Alberty ed., 2009) (discussing the NBRC s Report). 74. Susan Jensen, A Legislative History of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 AM. BANKR. L.J. 485, 487 (2005). 75. Id. at Id. at Id. at 488. For more on claims that bankruptcy filing has increased with the decline of related social stigmas, see Bruce M. Price & Terry Dalton, From Downhill to Slalom: An Empirical Analysis of the Effectiveness of BAPCPA (and Some Unintended Consequences), 26 YALE L. & POL Y REV. 135, (2007) (explaining that, traditionally, [s]ociety viewed bankrupt debtors as financially irresponsible and overindulging ). 78. See Catherine E. Vance & Corinne Cooper, Nine Traps and One Slap: Attorney Liability Under the New Bankruptcy Law, 79 AM. BANKR. L.J., 283, 285 (2005) ( Beginning in the 105th Congress, when BAPCPA was first introduced, nearly every version of the bill reflected the views of the NBRC s minority. ); see also Susan Jensen, A Legislative History of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 AM. BANKR. L.J. 485, 493 (2005) (noting that one month before the Commission filed its Report, the House began to consider legislation that largely reflect[ed] the views of the dissenting Commissioners with respect to the direction of consumer bankruptcy reforms ). 79. Susan Jensen, A Legislative History of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 AM. BANKR. L.J. 485, 494 (2005). 80. See id. at 495 (observing the similarities in viewpoints regarding the state of consumer bankruptcy as shown between the dissenters and state representatives).

18 368 ST. MARY S LAW JOURNAL [Vol. 41:351 condemned the state of bankruptcy as an epidemic ; he argued that bankruptcy had become a way for reckless spenders to escape their debts. 81 In February 1998, he introduced the Bankruptcy Reform Act of 1998 into the House 82 with the stated goal of restor[ing] bankruptcy to its original purpose as a final last resort after all the options have been explored. 83 Although the seeds of the BAPCPA were rooted in the 103rd and 104th Congresses, 84 the core elements of the Act remained the same throughout. 85 By the time the BAPCPA passed Congress and was signed into law in 2005, Congress had introduced hundreds of changes to existing bankruptcy law. 86 Many of these changes were aimed at the newly-formed debt relief agenc[ies], 87 which the BAPCPA amended into the Bankruptcy Code. 88 III. THE THRESHOLD QUESTION: ARE ATTORNEYS DEBT RELIEF AGENCIES? A. Majority Attorneys Are Debt Relief Agencies Bankruptcy Courts in the Western 89 and Southern Districts of Texas, 90 the Northern District of California, 91 and the Eastern 81. Nat l Bankr. Review Comm n: Hearing Before the Subcomm. on Commercial & Admin. Law of the H. Comm. on the Judiciary, 105th Cong. 2 3 (1997). 82. Susan Jensen, A Legislative History of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 AM. BANKR. L.J. 485, 496 (2005). 83. Id. at 495 (quoting Nat l Bankr. Review Comm n: Hearing Before the Subcomm. on Commercial & Admin. Law of the H. Comm. on the Judiciary, 105th Cong. 2 3 (1997)) (discussing Representative Gekas s plan to introduce legislation that would address the area of consumer bankruptcy). 84. Id. at Erwin Chemerinsky, Constitutional Issues Posed in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 AM. BANKR. L.J. 571, 571 (2005) (contending that, despite its lengthy legislative history, each iteration of [the Act] continued the same core features[] ). 86. George H. Singer & Whitney R. Cohen, The Attorney As Debt Relief Agency: A Bridge Too Far?, 65 BENCH & B. MINN. 20, 20 (2005). 87. Milavetz, Gallop & Milavetz, P.A. v. United States, 541 F.3d 785, 789 n.2 (8th Cir. 2008) ( Prior to the BAPCPA, the term debt relief agency did not exist in the Code. ), cert. granted, 129 S. Ct (U.S. June 8, 2009) (No ) U.S.C. 101 (2006). 89. In re Mendoza, 347 B.R. 34, 38 n.6 (Bankr. W.D. Tex. 2006). 90. In re Irons, 379 B.R. 680, 684 (Bankr. S.D. Tex. 2007). 91. In re Gutierrez, 356 B.R. 496, 500 (Bankr. N.D. Cal. 2006).

19 2009] COMMENT 369 District of Virginia 92 have all included attorneys within the category of debt relief agencies. The United States District Courts for the Northern District of Texas, 93 the District of Connecticut, 94 and the District of Oregon 95 have agreed. And, finally, the dispute made its way to the federal appellate courts for the Fifth and Eighth Circuits, which concluded that attorneys are, indeed, debt relief agencies. 96 The courts that included attorneys in the debt relief agency category did so under a plain reading of the statute, which is often regarded as the preferred method of statutory analysis. 97 With the 92. In re Robinson, 368 B.R. 492, 500 n.7 (Bankr. E.D. Va. 2007). 93. Hersh v. United States, 347 B.R. 19, 22 (N.D. Tex. 2006), rev d in part sub nom. Hersh v. United States ex rel. Mukasey, 553 F.3d 743 (5th Cir. 2008). 94. Zelotes v. Adams, 363 B.R. 660, 665 (D. Conn. 2007). 95. Olsen v. Gonzales, 350 B.R. 906, 912 (D. Or. 2006), aff d, 368 B.R. 886 (D. Or. 2007). 96. Hersh v. United States ex rel. Mukasey, 553 F.3d 743, 750 (5th Cir. 2008); Milavetz, Gallop & Milavetz, P.A. v. United States, 541 F.3d 785, 797 (8th Cir. 2008), cert. granted, 129 S. Ct (U.S. June 8, 2009) (No ). 97. Hersh, 347 B.R. at (discussing the term debt relief agencies in light of its plain meaning). The Fifth Circuit agreed with the district court s mode of analysis in Hersh and affirmed its conclusion that attorneys are debt relief agencies. Hersh, 553 F.3d at 750. Although it addressed the legislative history of the BAPCPA in its analysis, the District of Oregon halted its analysis under the plain meaning of 101(12A) and included attorneys in the debt relief agency category with no further rules of construction. Olsen, 350 B.R. at 912. The argument that attorneys are debt relief agencies under a plain reading of the statute is in small part supported, perhaps, by the cases that have assumed that fact without deciding it. See, e.g., In re Mendoza, 347 B.R. 34, 38 n.6 (Bankr. W.D. Tex. 2006) (assuming attorneys fall within the debt relief agency category); see also In re Gutierrez, 356 B.R. 496, (Bankr. N.D. Cal. 2006) (treating attorneys as part of the debt relief agencies regulated by 526). The Bankruptcy Court for the Western District of Texas, for example, merely commented in a footnote that 526(a)(2) of the BAPCPA prohibits the debtor s attorney (who is, in virtually all of these cases, a debt relief agency ) from making certain statements to his client. In re Mendoza, 347 B.R. at 38 n.6. Similarly, the Northern District of California presumed without question that debt relief agencies includes bankruptcy attorneys in In re Gutierrez, 356 B.R. at , as did the Eastern District of Virginia in In re Norman, No A, 2006 WL , at *4 n.5 (Bankr. E.D. Va. Oct. 24, 2006). The Western District of Texas used these examples as support for its holding that attorneys are debt relief agencies and noted that it see[s] no ambiguity in the Bankruptcy Code on the issue. In re Irons, 379 B.R. 680, (Bankr. S.D. Tex. 2007). Accordingly, it decided to follow the plain meaning of the statute and hold that attorneys are subject to the mandates of 526(a)(4) and 527(b). Id. at 685. The court also disclaimed the persuasive value of In re Attorneys at Law, which held that attorneys are not debt relief agencies. Id. at 686 (citing In re Att ys at Law & Debt Relief Agencies, 332 B.R. 66 (Bankr. S.D. Ga. 2005)). The court stated that it respectfully declines to subscribe to the Georgia opinion

20 370 ST. MARY S LAW JOURNAL [Vol. 41:351 guidance of defined terms appearing in 101(4A), both the Fifth and the Eighth Circuits concluded that attorneys who provide bankruptcy assistance to assisted persons are unambiguously included in the definition of debt relief agencies. 98 For example, because debt relief agency is defined as any person who provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration, the courts look to the definition of bankruptcy assistance contained in 101(4A). The definition of bankruptcy assistance includes providing legal representation with respect to a case or proceeding under the Bankruptcy Code. 99 The Fifth Circuit explained, As only attorneys can provide legal representation, they are necessarily included in the definition of debt relief agency. 100 The courts also looked to the express exceptions of the 526(a)(4) debt relief agency category, which include: (A) any person who is an officer, director, employee, or agent of a person who provides such assistance or of the bankruptcy petition preparer; (B) a nonprofit organization... (C) a creditor of such assisted person, to the extent that the creditor is assisting such assisted person to restructure any debt... (D) a depository institution... or any Federal credit union or State credit union... or any affiliate or subsidiary... ; or (E) an author, publisher, distributor, or seller of works subject to copyright protection under title The district court in Hersh concluded that Congress surely would have included attorney in the list of excepted entities if it desired to exclude attorneys from a group they fell so plainly within. 102 The Fifth Circuit approved this analysis, noting that an.... An opinion issued without a pending case or controversy is the equivalent of a law review article issued without peer review. Id. 98. Milavetz, 541 F.3d at 791; see also Hersh, 553 F.3d at (agreeing with the holding of the Eighth Circuit on a plain reading of 101(12A)) U.S.C. 101(4A) (2006) Hersh, 553 F.3d at U.S.C. 101(12A) (2006) Hersh v. United States, 347 B.R. 19, 23 (N.D. Tex. 2006), rev d in part sub nom. Hersh v. United States ex rel. Mukasey, 553 F.3d 743 (5th Cir. 2008). Furthermore, the court noted that inferences made on the basis of imprecise drafting are surely